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7.5 The Nature of “Spiritual Capital”

In the introduction to this chapter, I suggested that management philosophy deserves more attention as a kind of “spiritual capital,” operating among tangible forms of capitals, such as materials, funds, and human resources. The spiritual capital sets up a unique framework of policy for the organization. In this sense, it is not a fourthlevel capital, after funds, materials, and human resources, but in fact determines how the three tangible capitals are used. Thus, spiritual capital may be considered a “meta-capital” for all other kinds of capitals.

Among the many case studies our study group has examined, I wish to refer to the Tata Group of India as an example of how a management philosophy works as a spiritual capital, directing a large-scale global corporation within the framework of a philosophy while also driving the group's global growth.

The Tata Group, established in 1868 by Jamsetji Tata (1939–1904), is India's oldest and largest financial combine. The Tata family, a Zoroastrian, or Parsi, family, acted as chairman of the group until the current chairman, Cyrus P. Mistry, took his position (he is also Parsi and a distant relative of the Tata family). The Parsi of India are a small minority group consisting of descendants of immigrants who came from Persia over 1,000 years ago. They have retained their faith in Zoroastrianism. The Tata were a family of Zoroastrian priests for over 30 generations, until Jamsetji's father, Nusserwanji Tata, turned into a merchant. The founder of the Tata Group, Jamsetji Tata, is known as the “Father of Indian Industry” because he was not just a great industrialist but also wanted to contribute to the development of India, then under the colonial rule of Great Britain. Jamsetji's basic philosophy could be roughly divided into three parts (see Nakagawa 1962; Lala 1981, 2004):

• Seeking business success by introducing modern management technique and technology along with ethical means

• Contributing to the nation of India through economy and industry

• Ensuring that profits, the wealth of the nation, are properly returned to society

These three pillars of his management philosophy comprise “the pursuit of advanced rationalism in business,” the “observation of advanced ethics in business,” and a “dedication to the nation and society.” In all aspects of management, Jamsetji sought the best ways of doing business successfully and ethically and of spending money to contribute to his nation and the society. I call this attitude “comprehensive rationalism” (Sumihara 2011, 2013, 2014b).

The founder's basic spirit has been passed down from generation to generation, although the expression of the spirit has evolved according to the times. Special attention should be paid to the fifth chairman, Ratan Tata (born in 1937), whose faculty for management is highly regarded both internationally and domestically. He became chairman in the early 1990s, when India opened its gates to the free market: up until then, the Tata Group was basically a domestic conglomerate. Over the last 20 years, he turned it into a large global company, now operating in more than 80 countries.

We should pay a special attention to Ratan Tata because, while he made the group multinational, he also kept the unity of its values. The key to this achievement is, I think, the new governance system developed under his regime especially the newly developed management model, the Tata Business Excellence Model (TBEM), and the ethical code of conduct, Tata Code of Conduct (TCoC). These two systems kept the whole group together under its common values. Below, we would like to see (1) how the latest management philosophy of the Tata Group, expressed as its “Purpose and Core Values,” is basically the same as the founder's philosophy and (2) how its management philosophy is made a reality through the TBEM and the TCoC.

Let us first consider the Purpose and Core Values, as expressed on the Tata Group's home page (see Tata Group (2014a)).

Purpose

At the Tata Group, we are committed to improving the quality of life of the communities we serve. We do this by striving for leadership and global competitiveness in the business sectors in which we operate.

Our practice of returning to society what we earn evokes trust among consumers, employees, shareholders, and the community. We are committed to protecting this heritage of leadership with trust through the manner in which we conduct our business.

Core Values

Tata has always been value driven. These values continue to direct the growth and business of Tata companies. The five core Tata values underpinning the way we do business are:

Integrity: We must conduct our business fairly, with honesty and transparency.

Everything we do must stand the test of public scrutiny.

Understanding: We must be caring; show respect, compassion, and humanity for our colleagues and customers around the world; and always work for the benefit of the communities we serve.

Excellence: We must constantly strive to achieve the highest possible standards in our day-to-day work and in the quality of the goods and services we provide.

Unity: We must work cohesively with our colleagues across the group and with our customers and partners around the world, building strong relationships based on tolerance, understanding, and mutual cooperation.

Responsibility: We must continue to be responsible and sensitive to the countries, communities, and environments in which we work, always ensuring that what comes from the people goes back to the people many times over.

This management philosophy covers all aspects of rationality, business, ethics, and the public use of earned profits, which I termed the spirit of “comprehensive rationality,” as inherited from the founder, Jamsetji Tata.

We will now examine how this basic management philosophy is realized. As mentioned, the business models established in the 1990s, the TBEM and the TCoC, became powerful tools for keeping the group together amid our globalizing environments.

For the sake of concision, I will show how these tools are used by the companies within the group (for more details, see Sumihara 2011, 2014b). The TBEM is not just a complex of management guidelines but is modeled on an award, the JRD Quality Value Award (JRD-QV Award), instituted in 1995 in memory of the fourth chairman, JRD Tata (1904–1993), a highly respected industrialist not only within the group but also nationally. The TBEM criteria are used to honor Tata companies each year on July 29 (JRD Tata's birthday) at a large award ceremony held at the National Center for Performing Arts in Mumbai, a huge theater equivalent to the Lincoln Center in New York City. The ceremony is simultaneously broadcast on the web to thousands of managers and employees and their families gathered at hotels in several major cities in India. According to a Tata manager I interviewed, the TBEM standards are considered so high that award recipients are often given other major awards nationally and internationally.

What is important about this award is that, rather than just business results or achievements, how the company has operated according to the TBEM criteria is also evaluated. The criteria do not encourage short-term success but encourage management to pursue the best practices. Thus, the TBEM is both an important resource for a better management and a restriction that guides management pursuit of excellence.

Tata's ethical code of conduct, the TCoC, is even more restrictive. It is a bulky set of documents containing 25 clauses. Its Foreword says the following:

The Tata Code of Conduct is a set of principles that guide and govern the conduct of Tata companies and their employees in all matters relating to business. First elucidated in 1998, the Code lays down the ethical standards that Tata employees have to observe in their professional lives, and it defines the value system at the heart of the Tata group and its many business entities. (Tata Group (2014b))

The method of evaluating whether the company or employees (especially managers) have shown deviant behavior is very strict. Each company has a full-time or part-time ethical specialist. Tata Sons, the parent company of the Tata Group, employs highly experienced ethic specialists who visit each company to interview the top managers in depth. If a problem is found, the company is warned. If the company does not heed the warning, it can be deprived of the right to use the Tata Group logo or, worse, be sold. A few companies have in fact been sold, according to a manager with Tata Sons.

Finally, Tata Sons owns a fair portion of each company. It is said that Ratan Tata, the fifth chairman, increased the shares under his regime to strengthen governance. Moreover, the chairman of the group is the chairman not only of Tata Sons but also of each major company within the group.

Thus, both the TBEM and TCoC, as extensions of the basic values of Tata Sons, serve as the accelerator and brake for the whole Tata Group. Each company regards them as resources because they provide the company with hints and knowledge to be relied upon for business success, while simultaneously regulating how the company and its employees behave.

 
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